Extra

Walter Armer, left, and Don Peterson of SNK Development watched crews at work on the Berkeley Arpeggio, their nine-story-plus loft project that will bring Berkeley at least nine $1 million condos.

By Richard Brenneman

Two major construction sites in downtown Berkeley will see the rise of a new home for Freight & Salvage (left) and the Berkeley Arpeggio condo project, right.

Million-dollar condos? In Berkeley? Yes, says Don Peterson, president of SNK Development, the company now building the nine-story-plus Berkeley Arpeggio on Center Street.

The costly condos will be on the ninth floor of the city’s newest high-rise, formerly known as the Seagate Building for its previous developer, which sold the site and development permits to the Phoenix-based firm three years ago.

(Earlier this year, Seagate also unloaded its largest Berkeley property, the Wells-Fargo tower just to the east of the Arpeggio.)

Peterson and Walter D. Armer, his vice president, met with a reporter recently atop the city parking structure to the west of the construction site, overlooking the deep hole where excavators were digging out the room to house the Arpeggio’s 160 parking spaces.

“The three-level garage should be complete by the end of the year, and by January the work will be strictly vertical,” Peterson said.

In addition to housing 143 condos—down from the originally planned 149—the Arpeggio will also contain what may the last new cultural density bonus space in the city.

Builders had two ways of exceeding the height and mass limits otherwise imposed by city zoning codes: Provision of below-market-rate housing, the so-called “inclusionary bonus,” and the provision of space for cultural activities.

The only other building to incorporate both bonuses was the Gaia Building, developed by Patrick Kennedy. A lengthy political battle over the long-vacant cultural space in that building—a fight that eventually ended up in court—spelled the end of the bonus.

But Seagate was able to gain an increased size for what was later named the Arpeggio by offering both below-market-rate condos and by including two rehearsal theaters and other space for the Berkeley Repertory Theater, with the proviso that the space also be available for use by other community organizations. The theater space will be ready for use by the end of next year, with the condos ready for occupancy a few months later, Armer said.

Seagate steered the project through the city’s Planning Commission—which must approve all condo projects—and the Zoning Adjustments Board, and the permits they won and then sold included the mandate to fulfill both the housing and cultural obligations.

While SNK has reduced the overall number of condos, Peterson said the 23 inclusionary units included in the original figure will remain.

SNK Realty Group partnered with Captec Financial Group, Inc., of Ann Arbor, Mich., to form SNK Captec Arpeggio, LLC, the entity which bought the Berkeley property. Project financing, completed late last year, comes in the form of a $65 million construction loan from Pacific National Bank of San Francisco, Peterson said.

While the nine penthouse units will have two bedrooms and a loft level above, the condos on the floors below are all one- and two-story dwellings, as well as some “one-plus” units which include a secondary open space area which can be used for a bedroom, den or office, Armer said.

Asked who might buy the units, Peterson said “We are looking at the university population and the Berkeley population,” with “empty-nesters” a target demographic as well as people who would like to live in the heart of the city’s theater district."

The building is on the same block as downtown Berkeley's two theaters, the Berkeley Rep and the Aurora.

“They are the buyers who would like to live in this type of building, a Class A high-rise, which can only be found currently in San Francisco,” said Armer.

Because the units will be unique in the East Bay Peterson said sales prices will be near the top of the East Bay market for luxury condos, but at the low end of the market on the other side of the Bay Bridge.

The Arpeggio is the company’s seventh Bay Area project, and Peterson said he is currently working on another development in San Bruno that totals 350 units, including apartments in one structure and condos in a second building.

Peterson said the company was drawn to the Berkeley site because it offered a prime location for a top-flight urban infill project, with its location in “a very dynamic neighborhood” with the BART station less than a block away and the UC Berkeley campus within easy walking distance. Berkeley also offered a community which the company believed is relatively immune to macro-level economic disruptions, in comparison with many other California cities, he said. Armer said construction has gone smoothly, and the builders found less underground water on site than they had feared. A row of temporary wells has been lowering the water level and will continue under the garage, which is sealed off “like a bathtub.”

The site will be a beehive of activity, with subcontractors from 40 different trades at work during the course of construction, Peterson said. First of many? While the Arpeggio includes an upper crust of million-dollar condos, Planning Commissioner Gene Poschman says we may be seeing plenty more if the city adopts height limits proposed for downtown Berkeley in a city-funded study done in connection with the new Downtown Area Plan now under review by the commission.

That study was funded by the City Council after a commission majority voted to recommend it.

According to what Poschman dubbed “the infeasibility study,” market conditions would allow for only construction of 16- or 17-story condo towers—not rental apartments—in addition to condo-containing hotels which could rise even higher.

During the debate over the Arpeggio permit, city staff reported that the city’s current bonuses would have allowed the building to rise to 14 stories, well over the current downtown height limits—far more than the structure now rising or the Gaia Building, the only other cultural bonus recipient.

Buildings—both apartments and condos—could still be financed at six floors or less. But the tall buildings, seen as a way to fufifll some of the regional housing-needs allocation imposed by regional government, could only be bankrolled as for-sale units, not rentals, the report said.

The feasibility study also said construction could be severely limited by the city mandate that requires developers to either sell some units for less than market rate or pay a substantial fee to finance city-backed subsidized housing elsewhere.

The Arpeggio was given a city building permit under the existing law, so the building includes 23 units sold only to those who make 120 percent or less of the Oakland region’s median income.

Even though the total number of condos dropped by six, the project will still include the original 11 inclusionary units and 12 density bonus units.

Inclusionary units are mandated by a law requiring multi-family housing builders to set aside one in every five units for those earning—in the case of condos—no more than 120 percent of the area’s median income.

Developers who pay the new city “in-lieu” fee can sell all their units at market rate if they pay the city a replacement fee for lost inclusionary units totaling 62.5 percent of the difference between the market-rate sales price and the reduced price mandated if the inclusionary units were sold as such.

The dozen density bonus units—which helped the Arpeggio to reach its full height and to offer the million-dollar terrace views on the top floors—are typically affordable to lower median incomes, in the range of 50 to 80 percent.

Unlike Poschman, who voted with the commission to support the current fee schedule, Planning Commission Chair James Samuels abstained, calling the amount too high and a deterrent to needed housing.